· The U.S. dollar index was roughly flat on Monday and sterling and the euro saw a modest rise as the foreign exchange market fell into an August lull, a traditionally quiet trading period with many investors and traders on vacation.
The British pound was 0.37% higher to trade at $1.208, with the euro up 0.17% against the dollar at $1.1219.
“It has been a pretty quiet day overall. We have had sterling and euro bubbling up. I don’t think there’s any particular super-positive news behind that. But, markets held substantial shorts in both currencies,” said Gregory Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.
The currency market is “heading into the deepest part of the holiday period. People are taking the shorts off and it puts upward pressure on both currencies. It’s probably the biggest story in FX for today.”
The dollar index was 0.1% lower at 97.390, having fallen earlier on expectations that a prolonged U.S.-China trade war would have a negative impact on American economic growth.
The Japanese yen rose to its highest against the dollar since March 2018 - barring a flash crash in January this year - as investors ramped up bets that the safe-haven currency could gain more if the trade conflict is prolonged. It was last 0.38% stronger against the dollar at 105.26.
Goldman Sachs analysts on Sunday said they no longer expected Washington and Beijing to come to a trade agreement before the 2020 presidential election. They lowered their forecast for fourth-quarter U.S. growth and said the chances a protracted trade war would lead to recession were rising.
This week, market attention will be on Chinese retail sales and industrial output for July, due out on Wednesday, to gauge the trade war’s impact on domestic activity.
Investors will also be focused on the U.S. Federal Reserve’s annual symposium at Jackson Hole, Wyoming, later this month, seeking greater clarity on the future path of interest rates. Markets are expecting two to three additional rate cuts from the Fed by the end of the year.
· U.S. government debt yields were sharply lower on Monday, amid trade tensions between the world’s two largest economies and concerns of slowing global economic growth.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.63%, while the yield on the 30-year Treasury bond was also lower at around 2.127%.
The spread between 2-year and 10-year Treasury yields narrowed to about only 5 basis points on Monday, near its lowest level since 2007.
· China’s central bank is nearly ready to issue its own sovereign digital currency, according to a senior official.
Mu Changchun, deputy director of the People’s Bank of China’s payments department, said the institution’s virtual currency was “almost ready” for release, according to Reuters. Mu’s comments were also reported by Bloomberg.
· As trade tensions escalate and economic indicators weaken, Wall Street is beginning to anticipate more aggressive interest rate cuts from the Federal Reserve, with at least one forecast seeing a return to near zero.
Economists now see the likelihood of three quarter-point reductions before the end of the year, along with multiple moves in 2020 until it becomes clear that the U.S. central bank has staved off a recession. The anticipation comes as Goldman Sachs just announced that it reduced its GDP projections by 0.2 percentage point and Bank of America Merrill Lynch said it sees increasing chances of a recession in the next 12months.
· Two back-to-back interest rate cuts in Australia to all-time lows were expected to provide some additional support to the country’s economy going forward, a senior central bank official said on Tuesday.
The Reserve Bank of Australia (RBA) reduced its benchmark cash rate to 1% in July and has since pledged to keep it low for longer, sending yields across the bond curve to depths not seen before.
· Attempting to allay concerns about the effectiveness of monetary policy as interest rates approach zero RBA’s Assistant Governor Christopher Kent said the policy transmission was “working in the usual way”.
· Argentina’s peso and stock market sold off steeply Monday after the country’s center-right leader, President Mauricio Macri, performed poorly in primary elections.
Macri lost by a far greater margin than expected on Sunday, early official results showed, casting serious doubt over the incumbent’s reelection chances in October.
The main Argentine stock market plunged more than 30% on Tuesday. Argentina’s peso shed nearly 25% of its value to around 59 per U.S. dollar shortly after trading opened. The peso had been at 45.25 at its previous close. According to traders cited by Reuters, the peso then hit a record 65 per dollar to mark a 30.3% loss.
· The United States would enthusiastically support a no-deal Brexit if that is what the British government decided to do, U.S. national security adviser John Bolton said on Monday during a visit to London aimed at reassuring Britain over UK-U.S. ties.
Bolton told British Prime Minister Boris Johnson that President Donald Trump wants to see a successful British exit from the European Union on Oct. 31 and that Washington will be ready to work fast on a U.S.-UK free trade agreement.
Johnson wants the EU to renegotiate the terms of Britain’s exit ahead of an Oct. 31 departure date, but the EU says it will not alter the part of the deal Johnson says must be changed.
· British Prime Minister Boris Johnson believes the European Union will cave in at the last minute and do a Brexit deal with him to “save Ireland”, the Sun newspaper reported on Monday, citing a source.
A no-deal Brexit would hurt Ireland the most and Johnson is convinced European leaders will budge over the key issue of the so-called Irish backstop, the Sun said.
· Hong Kong’s airport reopened on Tuesday but its administrator warned that flight movements would still be affected, after China said widespread anti-government protests that halted flights a day earlier showed “sprouts of terrorism”.
The notice was published on the Hong Kong International Airport’s official mobile app at 6 a.m. (2200 GMT Monday). The airport, one of the world’s busiest, blamed demonstrators for halting flights on Monday.
· South Korea said on Monday it plans to drop Japan from its “white list” of countries with fast-track trade status from September, a tit-for-tat move that deepens a diplomatic and trade rift between the two countries.
The Japanese government did not immediately issue a public response to Monday’s announcement, but a senior foreign ministry official told broadcaster NHK that a response would come after more analysis of the details of South Korea’s decision.
Another foreign ministry official said that Tokyo was not expecting an immediate impact, NHK reported.
Japan announced earlier this month that it was removing South Korea from its own “white list” of countries that have enjoyed minimum trade restrictions, citing an erosion of trust.
· Oil prices rose on Monday despite worries about a global economic slowdown and the ongoing U.S.-China trade war, which has reduced demand for commodities such as crude.
International benchmark Brent crude futures were at $58.53 a barrel, up 0.02% from their previous settlement. U.S. West Texas Intermediate (WTI) futures were at $54.93 per barrel, up 0.8% from their last close.
Both benchmarks had fallen earlier in the day, with Brent hitting a session low of $57.88 and WTI a session low of $53.54.
Reference: CNBC, Reuters
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